Service Costs Incur Indirect Costs and the Basis of Allocating

question 13

Multiple Choice

Service costs incur indirect costs and the basis of allocating indirect costs requires the identification of:

• A) cost centres.
• B) responsible departments.
• C) cost drivers.
• D) service products.

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Definitions:

Fixed Expenses

Recurring costs that do not vary with the level of production or sales, such as rent, salaries, and insurance.

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to a change in its sales volume, signifying the impact of fixed versus variable costs.

Variable Expenses

Costs that vary directly with the level of production or sales volume, such as raw materials, direct labor, and sales commissions.

Fixed Expenses

Costs that remain constant for a set period of time, regardless of changes in the level of production or sales volume.